UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

FIRST BANCTRUST CORPORATION

Delaware		37-1406661
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
101 South Central Avenue Paris, Illinois		61944
(Address of principal executive offices)		(Zip Code)

Nasdaq Capital Market		Common Stock (par value $0.01 per share)
(Name of exchange on which registered)		(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer   o		Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $20,529,463 as of June 30, 2007.

APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 2,185,839 shares of common stock as of March 10, 2008.

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated:

(1)		Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 2007 are incorporated by reference into Parts II and III.
(2)		Portions of the definitive proxy statement for the Annual Meeting of Stockholders, scheduled for April 21, 2007, are incorporated by reference into Part III.

 

 

INDEX

		PAGE
PART I
Item 1. Description of Business			1
Item 1A. Risk Factors			37
Item 1B. Unresolved Staff Comments			37
Item 2. Properties			37
Item 3. Legal Proceedings			38
Item 4. Submission of Matters to a Vote of Security Holders			38
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			38
Item 6. Selected Financial Data			39
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			40
Item 7A. Quantitative and Qualitative Disclosures about Market Risk			40
Item 8. Financial Statements and Supplementary Data			40
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			41
Item 9A(T). Controls and Procedures			41
Item 9B. Other Information			42
PART III
Item 10. Directors, Executive Officers and Corporate Governance			42
Item 11. Executive Compensation			43
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			43
Item 13. Certain Relationships and Related Transactions, and Director Independence			43
Item 14. Principal Accountant Fees and Services			44
PART IV
Item 15. Exhibits and Financial Statement Schedules			44
SIGNATURES			46
Exhibit 3.2
Exhibit 13.0
Exhibit 14.0
Exhibit 23.0
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

FORWARD-LOOKING STATEMENTS

In addition to historical information, this filing may include certain forward-looking statements based on current management expectations. The forward-looking statements are identifiable by the use of the terms “believes,” “expects,” “anticipates,” “estimates,” “intends,” “consider,” “plans,” “seeks,” and similar expressions. The Company’s actual results could differ materially from those management expectations. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state, and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality of competition, changes in the quality or composition of the Company’s loan and investment portfolios, changes in accounting principles, policies, or guidelines, and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and prices.

PART I

Item 1. Description of Business

General

First BancTrust Corporation (the “Company”) was incorporated in November 2000 under Delaware law. On April 18, 2001, the Company acquired all of the outstanding shares of common stock of First Bank & Trust, s.b. of Paris, Illinois, (“First Bank” or the “Bank”) upon the Bank’s conversion from an Illinois chartered mutual savings bank to an Illinois chartered stock savings bank (the “Conversion”). The Company purchased 100% of the outstanding capital stock of the Bank using 50% of the net proceeds from the Company’s initial stock offering which was completed on April 18, 2001. The Company sold 3,041,750 shares of common stock in the initial offering at $5 per share. The Company began trading on the Nasdaq Small Cap Market on April 19, 2001 under the symbol “FBTC”. At December 31, 2007, the Company had consolidated total assets, liabilities and stockholders’ equity of $326.9 million, $300.4 million, and $26.5 million, respectively.

The Company’s assets on an unconsolidated basis at December 31, 2007 consisted primarily of the investment in the Bank of $32.2 million, investment in First Charter Service Corporation of $75,000, investment in ECS Service Corporation doing business as Edgar County Title of $279,000, and investment in FBTC Statutory Trust I of $186,000, interest-bearing demand deposits of $36,000, an Employee Stock Ownership Plan (“ESOP”) loan to the Bank of $220,000, available-for-sale securities of $104,000, premises and equipment of $152,000, cash surrender value of life insurance of $72,000, and other assets of $435,000. The Company originates loans and solicits deposits through the Bank, but otherwise conducts no significant business except through the Bank and the Company’s other non-bank subsidiaries.

The Bank was founded in 1887, and continued as an Illinois mutual savings and loan, until January, 1990 when it was merged with First Federal Bank, a federal mutual savings bank. In June, 1995, the charter was converted to an Illinois mutual savings bank, and the name modified to First Bank & Trust, s.b. As previously stated, First Bank converted to an Illinois stock savings bank in April, 2001. The Bank conducts business out of its main office and finance center branch in Paris, Illinois, in Edgar County, and branch offices in Marshall and Martinsville, Illinois in Clark County, and Savoy, and Rantoul, Illinois in Champaign County. The primary market areas of Clark and Edgar counties are located in east central Illinois, just west of Terre Haute, Indiana, and are both rural counties where agriculture is responsible for a large share of the local economy. The Bank opened a satellite facility in May, 2006 in Martinsville, located approximately ten miles west of the Marshall branch. In September, 2003, the Bank began operations in a temporary facility in Savoy, Illinois, until the move into a permanent facility in August, 2004. The Savoy market area is immediately adjacent to the large urban markets of Champaign and Urbana, and shows strong demographic characteristics. The community has experienced higher than average population growth, resulting in new housing construction. The Savoy market is characterized by a younger population, due to its proximity to the University of Illinois in Champaign-Urbana. The majority of the labor force in this area is employed in managerial or professional occupations. In October, 2005, the Company acquired all of the outstanding common shares of Rantoul First Bank, SB, located in northern Champaign County. The transaction was accounted for as a purchase, and the entity merged into the Bank’s operations at the date of acquisition. Rantoul is also adjacent to the Champaign-Urbana urban area, located approximately 15 miles north of Champaign-Urbana. In December, 2006, the Bank acquired a second Rantoul branch location and deposits from another financial institution. This location was operated throughout 2007, but was closed effective January 31, 2008 and merged into the first Rantoul branch.

As of December 31, 2007, the Bank had total assets of $310.0 million, total liabilities of $278.9 million, and total equity of $31.1 million. Total assets grew by $36.6 million, the majority from an increase in loans, which was primarily funded by a reduction in cash and cash equivalents and investments. Net income of $1.4 million in 2007, decreased by $68,000 or 4.5%, which was primarily attributable to increases in the provision for loan losses of $545,000 and a $178,000 increase in noninterest expense, partially offset by increases in net interest income of $360,000, and noninterest income of $295,000.

Business of the Company

The Company’s principal business consists primarily of attracting deposits from the general public and using those funds to originate loans secured by one-to four-family residential properties, commercial real estate loans, agricultural real estate loans, commercial and industrial loans, agricultural production finance loans, consumer loans and other loans. A substantial number of single family residential mortgage loans, agricultural loans, and commercial loans have been sold into the secondary market, and the Company retains servicing rights to those loans. At December 31, 2007, the Company’s loan portfolio including loans held for sale, totaled $237.3 million. In addition, at December 31, 2007 the Company serviced $86.9 million in loans ($80.4 million of residential loans, $6.1 million of agricultural loans, and $383,000 in commercial loans). The Company also invests in U.S. government securities, municipal securities, and mortgage-backed securities. At December 31, 2007, the Company’s securities portfolio totaled $53.9 million, of which $48.6 million are designated as available for sale, and $5.3 million are designated as held to maturity. The Company also had $2.7 million invested in interest-bearing demand deposits at December 31, 2007.

The Company’s revenues are derived principally from interest on its mortgage, consumer, agriculture and commercial loans, interest on its securities, gains on loan sales, loan servicing fees, abstract and title fees, service charges on deposits, and other customer fees. The Company’s primary sources of funds are deposits, loan repayments, sales of loans in the secondary market, purchases of federal funds, and advances (loans) from the Federal Home Loan Bank (“FHLB”).

The Company’s ability to earn a profit depends on net interest income, which is the difference between the interest income earned on interest-earning assets, such as mortgage, commercial and consumer loans, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Company’s profitability depends on its ability to manage assets and liabilities during periods of changing interest rates. To a lesser extent, the Company’s profitability depends on the ability to continue to generate noninterest income from services provided to its customers.

Lending Activities

General. At December 31, 2007, the net loan portfolio before allowance for loan losses, of the Company totaled $236.9 million, representing 72.5% of total assets at that date. One of the principal lending activities of the Company is the origination of one-to-four family (which are also known as single-family) residential loans. At December 31, 2007, single-family residential loans amounted to $78.0 million or 32.8% of the total loan portfolio. Of this amount, $11.1 million consisted of second mortgage or home equity loans. In addition, the Company originates commercial real estate loans, agricultural real estate loans, commercial and industrial loans, agricultural production finance loans, consumer loans and tax-exempt loans. On a more limited basis, the Company offers multi-family loans and construction loans.

The types of loans the Company may originate are subject to federal and state laws and regulations. Interest rates charged on loans are affected principally by the demand for such loans and the supply of money available for lending purposes and the rates offered by competitors. These factors are, in turn, affected by general and economic conditions, the monetary policy of the federal government, including the Federal Reserve Board, legislative and tax policies, and governmental budgetary matters.

Loan Portfolio Composition. The following table sets forth the composition of the Company’s loan portfolio by type of loan at the dates indicated.

		12/31/07				12/31/06				12/31/05				12/31/04				12/31/03
		Amount				Amount				Amount				Amount				Amount
Real estate loans:
One-to-four family		$	78,035			$	66,665			$	51,823			$	37,568			$	36,513
Multi-family			13,509				3,417				695				716				266
Commercial			49,664				33,751				33,244				16,902				10,124
Construction			4,166				2,423				2,423				1,516				2,275
Agricultural loans			29,047				26,983				20,913				16,937				13,908
Commercial and industrial			14,395				7,360				7,886				6,411				6,417
Agricultural production finance			19,875				18,897				15,442				13,603				12,357
Consumer loans:
Vehicle			21,948				21,793				21,305				20,801				21,035
Consumer finance			815				877				872				800				823
Share			828				1,012				708				472				533
Other			4,133				3,857				3,531				3,099				3,169
Other loans			1,526				1,600				1,677				1,769				1,983
Total loans receivable			237,941				188,635				160,519				120,594				109,403
Less:
Undisbursed portion of loans			1				87				164				17				23
Unearned discount and fees			994				882				808				829				845
Allowance for loan losses			2,091				2,222				2,662				2,300				2,124
Loans receivable, net		$	234,855			$	185,444			$	156,885			$	117,448			$	106,411

Loans held for sale, net of unrealized losses, at December 31, 2007 amounted to $394,000, and are not included in the above table. These loans are single family dwellings committed for sale to the Federal Home Loan Mortgage Corporation and Illinois Housing Development Authority.

Origination of Loans. The lending activities of the Company are subject to the written underwriting standards and loan origination procedures established by the Board of Directors and management. Loan originations are obtained through a variety of procedures, including referrals from real estate brokers, builders and existing customers. The loan officers obtain financial data and credit information from the applicant, and, within their limits, make the decision to extend credit to the borrower. Loan processing personnel independent of the credit decision process will order the appraisal on the property, and collect other necessary information to complete the loan documentation. Property valuations on loans over $250,000 are performed by independent outside appraisers approved by the Executive Officers. A written evaluation is required for all real estate loans in the amount of less than $250,000 by a qualified individual in conformity with the Interagency Appraisal and Evaluation Guidelines.

Under the real estate lending policy of the Company, evidence of ownership must be established in order to perfect a lien on real estate to be used as collateral. For all first lien residential mortgage loans in excess of $5,000 evidence of ownership shall be established by obtaining title insurance. Fire and extended casualty insurance coverage is also required on the property. Flood insurance is required when the property is in a flood hazard area designated by the Department of Housing and Urban Development. The Company generally does not require borrowers to advance funds to an escrow account for the payment of real estate taxes or hazard insurance premiums, although loans originated through specific programs such as Rural Development, Illinois Housing Development Authority or FHA/VA may require the use of escrow accounts.

The Company’s loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan and the adequacy of the collateral that will secure the loan. The Company’s loan policy assigns aggregate lending limits to officers of the Company depending on the type of loan and whether the loan is secured or unsecured. Officers may individually approve loans within their designated limits; however, officers may not combine authority. Generally, loans in excess of individual limits are referred to an officer loan committee up to $500,000. The largest amount of aggregated credit that can be extended to one borrower or single source of repayment by the officer loan committee acting in concert is 2.5% of qualified capital regardless of their individual authorized lending limits. Management has established an executive officers’ loan committee, which may generally approve credit requests up to the lesser of $1.5 million or 5% of qualified capital. The Board of Directors has established a loan committee of directors, which currently includes four independent directors. The loan committee of directors is authorized to approve loan requests for an individual borrower or single source of repayment which, if combined with all other outstanding debt attributable to that borrower or single source of repayment, does not exceed the lesser of 10% or qualified capital or $4,500,000. Any extension of credit that will cause the combined loan balance to exceed this limitation must be must be approved by three executive loan committee, the directors’ loan committee, and submitted to the full Board of Directors for their approval.

Although federal laws and regulations permit savings institutions to originate and purchase loans secured by real estate located throughout the United States, the Company generally concentrates its lending activity on its primary market area of Edgar, Clark, Vermilion, and Champaign counties, Illinois. A savings institution generally may not make loans to one borrower and related entities in an amount which exceeds the greater of (i) 20% of its unimpaired capital and surplus, although loans in an amount equal to an additional 10% of unimpaired capital and surplus may be made to a borrower if the loans are fully secured by readily marketable securities, and (ii) $500,000. As an Illinois-chartered savings bank, the Bank is permitted to invest without limitation as a percentage of assets in residential mortgage loans and up to 400% of its capital in loans secured by non-residential or commercial real estate. The Bank may also invest in secured and unsecured consumer loans in an amount not exceeding 35% of total assets. This 35% limitation may be exceeded for certain types of consumer loans such as home equity and property improvement loans secured by residential real property. In addition, the Bank may invest up to 10% of its total assets in secured and unsecured loans for commercial, corporate, business or agricultural purposes. The Bank has received a waiver from the Illinois Department of Financial and Professional Regulation regarding its ability to exceed this 10% limit. The Bank is subject to its internal loans-to-one borrower limitation of 15% of unimpaired capital.

Maturity of Loan Portfolio. The following table presents certain information at December 31, 2007, regarding the dollar amount of loans maturing in the Company’s portfolio based on their contractual terms to maturity or scheduled amortization, but does not include potential prepayments. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as becoming due within one year. Loan balances do not include undisbursed loan proceeds, net deferred origination costs and allowance for loan losses.

		At December 31, 2007
						Commercial				Agricultural
						and				Production								Other				Total
		Real Estate				Industrial				Finance				Consumer				Loans				Loans
		(In Thousands)
Amounts due in:
One year or less		$	17,583			$	3,888			$	13,094			$	2,378			$	22			$	36,965
More than one year to five years			58,488				8,886				3,925				22,739				—				94,038
More than five years			98,350				1,621				2,856				2,607				1,504				106,938
Total amount due		$	174,421			$	14,395			$	19,875			$	27,724			$	1,526			$	237,941

The following table sets forth the dollar amount of all loans, before net items, due after December 31, 2008 which have fixed interest rates or which have floating or adjustable rates.

		Fixed-Rates				Floating or Adjustable-Rates				Total
		(In Thousands)
Real estate loans:
One-to-four family		$	25,046			$	48,913			$	73,959
Multi-family			12,917				592				13,509
Commercial			24,964				16,294				41,258
Construction			22				507				529
Agricultural loans			13,356				14,227				27,583
Commercial and industrial			7,403				3,104				10,507
Agricultural production finance			4,010				2,771				6,781
Consumer loans:
Vehicle			21,207				—				21,207
Consumer finance			708				—				708
Share			45				5				50
Other			3,327				54				3,381
Other loans			—				1,504				1,504
Total loans receivable		$	113,005			$	87,971			$	200,976

Scheduled contractual maturities of loans do not necessarily reflect the actual expected term of the loan portfolio. The average life of mortgage loans is substantially less than their average contractual terms because of prepayments. The average life of mortgage loans tends to increase when current mortgage rates are higher than rates on existing mortgage loans and, conversely, decrease when rates on current mortgage loans are lower than existing mortgage loan rates (due to refinancing of adjustable-rate and fixed-rate loans at lower rates). Under the latter circumstance, the weighted average yield on loans decreases as higher yielding loans are repaid or refinanced at lower rates.

One-to-Four Family Residential Real Estate Loans. One of the primary lending activities of the Company is the origination of loans secured by single-family residences. At December 31, 2007, $78.0 million or 32.8% of the total loan portfolio consisted of single-family residential loans. Of this amount, $11.1 million consisted of second mortgage or home equity loans.

The Company’s present lending policy on one-to-four family regular conventional residential mortgage loans generally limits the maximum loan-to-value to 80% of the appraised value of the property. If the Company originates a residential mortgage loan with a loan-to-value in excess of 80%, the Company may require the borrower to obtain private mortgage insurance. An alternative mortgage product is available for owner occupied one to four family residential properties within the Bank’s market area which generally allows financing to qualified applicants of up to 100% of the purchase price or the appraised value, whichever is less. Residential mortgage loans are typically amortized on a monthly basis with principal and interest due each month.

The Company’s residential mortgage loans have either fixed rates of interest or interest rates which adjust periodically during the term of the loan. Fixed-rate loans generally have maturities from 5 to 30 years and are fully amortizing with monthly payments sufficient to repay the total amount of the loan with interest by the end of the loan term. The Company’s fixed-rate conventional loans generally are originated under terms, conditions and documentation which permit them to be sold to U.S. government-sponsored agencies, such as the Federal Home Loan Mortgage Corporation, and other investors in the secondary market for mortgages. The Company sells a majority of qualifying fixed-rate conventional loans with terms greater than 10 years in the secondary market. At December 31, 2007, $28.7 million, or 36.7% of the Company’s single-family residential mortgage loans were fixed-rate loans.

The adjustable-rate single-family residential mortgage loans currently offered by the Company have interest rates which adjust every one, three or five years in accordance with a designated index such as one-, three-, or five-year U.S. Treasury obligations adjusted to a constant maturity, plus a stipulated margin. In addition, the Company offers an adjustable mortgage loan with a fixed-rate for the first three or five years which adjusts on an annual basis thereafter. The Company’s adjustable-rate single-family residential real estate loans generally have a cap of 1% or 2% on any increase or decrease in the interest rate at any adjustment date, and include a specified cap on the maximum interest rate over the life of the loan, which is generally 6% above the initial rate. Such loans generally are underwritten based on the initial rate. The Company’s adjustable-rate loans require that any payment adjustment resulting from a change in the interest rate of an adjustable-rate loan be sufficient to result in full amortization of the loan by the end of the loan term, and thus, do not permit any of the increased payment to be added to the principal amount of the loan, or so-called negative amortization. At December 31, 2007, $49.3 million or 63.3% of the Company’s single-family residential mortgage loans were adjustable-rate loans.

At December 31, 2007, the Company’s second mortgage or home equity loans amounted to $11.1 million or 4.7% of the total loan portfolio. These loans are secured by the underlying equity in the borrower’s residence, and accordingly, are reported with the one-to-four family real estate loans. As a result, the Company generally requires loan-to-value ratios of 90% or less after taking into consideration the first mortgage held by the Company. If the Company does not own or service the first mortgage, it may limit the total loan-to-value ratio to 80%. These loans typically have up to ten-year terms with an interest rate adjustment after one, three, five, or seven years. Fixed rate second mortgages are also offered, although the term of the loan cannot exceed seven years. Home equity lines-of-credit are also offered to qualified applicants to fund up to 100% of the equity in the borrower’s home, based on the appraised value of the property, if the Company holds the first mortgage on the property. For all others, the maximum loan-to-value is eighty percent of the appraised value of the property. Home equity lines-of-credit are adjustable rate products priced off of the “prime” rate, and reprice monthly.

Adjustable-rate loans decrease the risks associated with changes in interest rates but involve other risks, primarily because as interest rates increase, the loan payment by the borrower increases to the extent permitted by the terms of the loan, thereby increasing the potential for default. Moreover, as with fixed-rate loans, as interest rates increase, the marketability of the underlying collateral property may be adversely affected by higher interest rates. The Company believes that these risks, which have not had a material adverse effect on the Company to date, generally are less than the risks associated with holding fixed-rate loans in an increasing interest rate environment.

Commercial Real Estate Loans. The Company’s commercial real estate portfolio primarily consists of loans secured by office buildings, warehouses, production facilities, recreational facilities, retail stores and restaurants located within the Company’s market area. Commercial real estate loans amounted to $50.0 million or 20.9% of the total loan portfolio as of December 31, 2007 with an average loan balance of approximately $195,000.

The Company’s commercial real estate loans typically have a loan-to-value ratio of 80% or less and generally have higher interest rates than single-family residential loans. Loans secured by raw land cannot exceed 65% of the appraised value, and loans secured by real estate to be used for land development can not exceed 75% loan-to-value. The maximum term of the Company’s commercial real estate loans cannot exceed 30 years. Generally, terms for commercial real estate loans are not longer than 10 years, and are based on an amortization schedule of up to thirty years. At December 31, 2007, fixed rate commercial real estate loans totaled $32.7 million, while adjustable rate commercial real estate loans totaled $17.3 million.

Commercial real estate lending is generally considered to involve a higher degree of risk than one-to-four family residential lending. Such lending typically involves large loan balances concentrated in a single borrower or groups of related borrowers for rental or business purposes. In addition, the payment experience on loans secured by income-producing properties is typically dependent on the success of the operation of the related project and thus is typically affected by adverse conditions in the real estate market and in the economy. The Company generally attempts to mitigate the risks associated with its commercial real estate lending by, among other things, lending primarily in its market area and using low loan-to-value ratios in the underwriting process.

Agricultural Real Estate Loans. At December 31, 2007, the Company’s agricultural loans amounted to $29.0 million or 12.2% of the total loan portfolio. The Company’s agricultural loans are primarily secured by farmland located in its market area and other counties in east-central Illinois and western Indiana. The Company’s adjustable rate agricultural real estate loans have interest rates which generally adjust every one, three or five years in accordance with a designated index and are generally amortized over 20 or 30 years. A portion of these agricultural real estate loans also include a balloon payment after 10 years. Fixed rate agricultural real estate loans generally are for terms of up to 15 years, although many are amortized over longer periods, and include a balloon payment at maturity. The Company’s lending policies on agricultural loans originated for its portfolio generally limit the maximum loan-to-value ratio to 80% of the lesser of the appraised value or purchase price of the property.

Many agricultural real estate loans to farmers have been underwritten by agency guidelines to qualify for a government guarantee of up to 90% of the original loan amount, which in turn qualifies them to be sold to a variety of investors in the secondary market. Once the government guarantee is secured from Farmers Home Loan Administration, the guarantee covers up to 90% of any loss on the loan. By way of example, assume that the Company originates a conforming $100,000 agricultural loan, secures a 90% guarantee from Farmers Home Loan Administration, and subsequently sells $90,000 of the loan in the secondary market with servicing retained. Assume that the borrower defaults on the loan, and the value of the property is $50,000. The Company would purchase the $90,000 portion from the investor, foreclose on the loan, and sell the property for $50,000. This would result in an initial loss to the Company of $50,000. However, as a result of the government guarantee, the Company would be reimbursed $45,000, representing 90% of its loss of $50,000. The Company’s out of pocket loss in this example would be $5,000. Likewise, if the Company holds the example loan which carries the 90% guarantee in its own portfolio, the loss to the Company would also be limited to $5,000, after filing the claim with Farmers Home Loan Administration. If the Company originates an agricultural loan which qualifies for the agency guarantee, it may originate the loan with a loan-to-value of 90% of the lesser of the appraised value or purchase price of the property. At December 31, 2007, the guaranteed amount of $5.5 million on farmland loans of $6.1 million were owned by various investors. Additionally, farmland loans of $4.4 million are included in the Company’s agricultural real estate portfolio, of which $4.0 million are guaranteed by the Farmers Home Loan Administration.

Commercial and Industrial Loans. At December 31, 2007, the Company’s commercial and industrial loans amounted to $14.4 million or 6.1% of the Company’s loan portfolio. Types of commercial loans in the portfolio at December 31, 2007 include short-term working capital loans and term loans for capital purchases, secured by inventory, accounts receivable, fixtures, or equipment. The Company’s commercial and industrial loans typically have a term of up to seven years and may have either floating rates tied to the Company’s internal prime rate or fixed rates of interest. The Company’s commercial and industrial loans are made to small to medium-sized businesses within the Company’s market area. A substantial portion of the Company’s small business loans are secured by perfected security interests in accounts receivable and inventory or other corporate assets such as equipment. The Company also generally obtains personal guarantees from the principals of the borrower with respect to all commercial and industrial loans. In addition, the Company may extend loans for a commercial business purpose which are secured by a mortgage on the proprietor’s home or business property. Commercial and industrial loans generally are deemed to involve a greater degree of risk than single-family residential mortgage loans.

Agricultural Production Finance Loans. At December 31, 2007, the Company’s agricultural production finance loans amounted to $20.0 million or 8.4% of the total loan portfolio. Generally these loans are extended to farmers in the Company’s market area and other counties in Illinois and Indiana for the purchase of equipment, seed, fertilizer, insecticide and other purposes in connection with agricultural production. The Company’s agricultural production finance loans generally have terms of one, three or five years, although loans secured by farm equipment may extend to seven years or longer. The maximum term for equipment secured loans will be tied directly to the useful life of the underlying collateral but cannot exceed 15 years. The interest rate is generally increased with respect to the longer terms loans due to the rate exposure of these loans. The amount of the commitment is based on management’s review of the borrower’s business plan, prior performance, marketability of crops, and current market prices. The Company will examine recent financial statements and shall evaluate cash flow analysis and debt-to-net worth, and liquidity ratios. These loans are secured by crops, equipment, accounts receivable, inventory, and second mortgages on the farmland.

The Company’s agricultural production finance loans may be originated under terms, conditions and documentation which allow them to qualify for a guarantee by the Farmers Home Loan Administration, and/or to be sold to a variety of investors in the secondary market. These qualifying loans also carry a government guarantee of up to 90% of any loss. At December 31, 2007, farm equipment loans of $3.4 million are included in the Company’s agricultural real estate portfolio, of which $3.0 million are guaranteed by the Farmers Home Loan Administration. Additionally, the guaranteed portion of $610,000 on farm equipment loans of $678,000 were sold into the secondary market, and serviced by the Company.

Consumer Loans. The Company is authorized to make loans for a wide variety of personal consumer purposes. At December 31, 2007, $27.7 million or 11.7% of the Company’s total loan portfolio consisted of consumer loans.

The Company originates consumer loans in order to provide a full range of financial services to its customers and because such loans generally have shorter terms and higher interest rates than residential mortgage loans. The consumer loans offered by the Company include vehicle loans, consumer finance loans, loans secured by deposit accounts in the Company and other miscellaneous loans.

The Company offers vehicle loans on both new and used vehicles, with a significant portion of the loans secured by recent model used vehicles at the time of origination. The vehicle loans offered by the Company have fixed interest rates and terms of up to six years for new vehicles or used vehicles (model year 2004 and newer) and up to five years for older used vehicles. Vehicle loans amounted to $21.9 million or 9.2% of the total loan portfolio at December 31, 2007. All of the Company’s vehicle loans are directly underwritten by the Company. The Company does not purchase any indirect vehicle loans.

At December 31, 2007, the Company’s consumer finance loans amounted to $815,000 or 0.3% of the total loan portfolio. These loans are typically secured by household items such as furniture and electronic appliances and equipment. These loans are primarily underwritten based on the collateral and debt to income ratios. The Company generally limits the terms of these loans to three years with a fixed interest rate.

The Company offers loans secured by deposit accounts in the Company, which amounted to $828,000 or 0.4% of the Company’s total loan portfolio at December 31, 2007. Such loans are originated for up to 90% of the account balance, with a hold placed on the account restricting the withdrawal of the account balance. These loans mature on or before the maturity date of the underlying certificate of deposit.

Other consumer loans consist primarily of unsecured personal loans and other loans. These loans amounted to $4.1 million or 1.7% of the total loan portfolio at December 31, 2007.

Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more credit risk than mortgage loans because of the type and nature of the collateral and, in certain cases, the absence of collateral. In addition, consumer lending collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness, and personal bankruptcy. In some cases, repossessed collateral for a defaulted consumer loan will not provide full repayment of the outstanding loan balance because of improper repair and maintenance of the underlying security. The remaining deficiency may not warrant further substantial collection efforts against the borrower. The Company believes that the generally higher yields earned on consumer loans compensate for the increased credit risk associated with such loans and that consumer loans are important to its efforts to increase rate sensitivity, shorten the average maturity of its loan portfolio and provide a full range of services to its customers.

Real Estate Construction Loans. At December 31, 2007, the Company had approximately $4.2 million or 1.8% of total loans in construction loans. Of this amount, $3.3 million was for construction loans on one-to-four single family dwellings, and of the remaining, $680,000 was for construction loans on multi-family units, and $199,000 was for a non-residential property. The construction loans of the Company are comprised largely of loans made to borrowers to construct individual pre-sold homes. Frequently, the construction loan and the permanent mortgage loan are originated at one closing as a construction/permanent loan. Interest-only payments are required during the construction period, which is typically six months.

Construction lending is generally considered to involve a higher degree of risk of loss than long-term financing on improved, owner-occupied real estate because of the uncertainties of construction, including the possibility of costs exceeding the initial estimates and the need to obtain a tenant or purchaser if the property will not be owner-occupied. The Company generally attempts to mitigate the risks associated with construction lending by, among other things, lending in its market area, using conservative underwriting guidelines, and monitoring the construction process.

Multi-family Residential Loans. The Company also has multi-family (over four units) residential loans. The multi-family residential mortgage loans are underwritten on substantially the same basis as its commercial real estate loans, although loan-to-value ratios may be up to 80%. At December 31, 2007, the Company had $13.5 million in multi-family residential mortgage loans which amounted to 5.7% of the total portfolio.

Other Loans. The Company’s other loans amounted to $1.5 million or 0.7% of the total loan portfolio at December 31, 2007. The majority of this balance represents a participation interest in an industrial revenue bond for a local hospital.

Loan Origination and Other Fees. In addition to interest earned on loans, the Company may receive loan origination fees or “points” for originating mortgage loans. Loan points are a percentage of the principal amount of the mortgage loan and are charged to the borrower in connection with the origination of the loan. A document preparation fee is generally assessed on consumer loan originations of $95 per loan for consumer non-mortgage originations, mortgages are assessed a $75 document preparation fee and a $225 underwriting fee. Community Finance, a division of the Bank, generally charges a loan document preparation fee of $30.

Loan servicing. The Company also services loans for others. Loan servicing includes collecting and remitting loan payments, accounting for the principal and interest, making inspections as required of mortgaged premises, contacting delinquent borrowers, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf of the borrowers and generally administering the loans. At December 31, 2007, the Company was servicing $86.9 million of loans for others. Of this amount, $80.4 million were single family residential loans sold to the Federal Home Loan Mortgage Corporation and the Illinois Housing Development Authority. Agricultural land and equipment loans serviced for others were $6.1 million, and commercial loans serviced for others were $383,000.

Asset Quality

General. The Company mails delinquent notices to borrowers when a borrower fails to make a required payment within 10 or 15 days of the due date. At the end of ten days, the customer will be contacted by phone, in person or by letter. Additional notices are sent out when a loan becomes 30 days or 60 days past due. Once contact has been made with a customer, the primary objective is to work out a repayment plan to cure the delinquency in a timely fashion. When a mortgage loan becomes 60 days delinquent, the collector will review customer information and determine the condition of the collateral. If the property has been abandoned, the collector will assure the property is secured. If a loan becomes 90 days past due, the Company mails a notice indicating that the Company will refer it to an attorney within 30 days to commence foreclosure. In most cases, deficiencies are cured promptly. While the Company generally prefers to work with borrowers to resolve such problems, the Company will institute foreclosure or other collection proceedings when necessary to minimize any potential loss.

Loans are placed on non-accrual status when management believes the probability of collection of interest is insufficient to warrant further accrual. After a loan is delinquent for 90 days or more, an interest reserve is established against which previously accrued but unpaid interest is deducted from interest income. If the borrower makes subsequent payments on the loan, they are applied to interest and principal, and the interest reserve is reduced by the amount of the interest payment. The Company periodically reviews all loans delinquent 90 days or more, and places those loans which are not likely to be collected on non-accrual status. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income, and subsequent payments received are applied only against the principal balance.

Real estate and other assets acquired by the Company as a result of foreclosure or by deed-in-lieu of foreclosure are classified as real estate owned until sold. The Company had $554,000 of real estate owned and other assets at December 31, 2007. This category consists primarily of commercial real estate, one-to-four residential properties, and vehicles.

Delinquent Loans. The following table sets forth information concerning delinquent loans at December 31, 2007, in dollar amounts and as a percentage of the Company’s total loan portfolio. The amounts presented represent the total outstanding principal balances of the related loans, rather than the actual payment amounts which are past due.

		December 31, 2007
		30-59 Days								60-89 Days								90 or More Days
		Overdue								Overdue								Overdue
						Percent								Percent								Percent
						of Total								of Total								of Total
		Amount				Loans				Amount				Loans				Amount				Loans
		(In Thousands)
Real estate loans:
One-to-four family		$	899				0.38	%		$	105				0.04	%		$	253				0.11	%
Commercial			722				0.30	%			1,204				0.51	%			—				—
Construction			—				—				—				—				—				—
Agricultural loans			204				0.09	%			—				—				—				—
Commercial and industrial			479				0.20	%			459				0.19	%			5				0.00	%
Agricultural production finance			11				0.00	%			157				0.07	%			584				0.25	%
Consumer loans:
Vehicle			198				0.08	%			9				0.00	%			10				0.00	%
Consumer finance			17				0.01	%			—				—				8				0.00	%
Other			8				0.00	%			10				0.00	%			8				0.00	%
Total loans		$	2,538				1.06	%		$	1,944				0.81	%		$	868				0.36	%

Non-Performing Assets. The following table presents information with respect to the Bank’s nonperforming assets at the dates indicated.

		At December 31,
		2007				2006				2005				2004				2003
		(In Thousands)
Non-perfoming loans:
90 Days Delinquent and Non-accrual loans:
Real estate loans:
One-to-four family		$	253			$	176			$	306			$	202			$	567
Commercial			—				546				510				—				302
Construction			—				—				—				108				113
Agricultural loans			—				—				64				—				—
Commercial and industrial			5				223				421				—				—
Agricultural production finance			584				246				—				19				32
Consumer loans:
Vehicle			10				78				94				97				89
Consumer finance			8				—				1				14				15
Other			8				37				23				3				8
Troubled debt restructurings			17				532				94				1,128				1,403
Total non-performing loans			885				1,838				1,513				1,571				2,529
Real estate owned (1)			554				366				267				190				96
Total nonperforming assets (2)		$	1,439			$	2,204			$	1,780			$	1,761			$	2,625
Total nonperforming loans as a percentage of total loans			0.37	%			0.98	%			0.95	%			1.31	%			2.35	%
Total nonperforming assets and troubled debt restructurings as a percentage of total assets			0.44	%			0.71	%			0.65	%			0.76	%			1.16	%

Classified Assets. Federal regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a higher possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Another category designated “special

mention” also must be established and maintained for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful, or loss. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset-classified loss, or charge off such amount. General loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution’s regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital. Federal examiners may disagree with an insured institution’s classification and amounts reserved.

An alternate method used to determine necessary reserve levels is to evaluate the collateral securing each classified loan to determine if a collateral “shortfall” exists. If a shortfall is identified, then a specific reserve amount for this amount should be established. Historical loss percentages by loan category are calculated by using a five-year average of actual loss experience, although these percentage amounts may be adjusted to reflect changes such as a change in the composition of the loan portfolio or a change in economic conditions. These defined percentages are applied to the remainder of the institution’s loan portfolio.

The Company’s total classified loans, which include impaired loans, at December 31, 2007, amounted to $13.9 million, $7.2 million of which was classified as substandard, $76,000 of which was classified doubtful, $40,000 of which was classified loss, and $4.0 million of which was classified as special mention or potential problem loans. Classified loans at December 31, 2006 were $11.8 million, $5.6 million of which was classified substandard, $188,000 of which was classified doubtful, $36,000 of which was classified loss, and $6.0 million of which was classified special mention or potential problem loans. Of the $13.9 million classified assets at December 31, 2007, $868,000 million were nonperforming loans as of December 31, 2007. The remaining $13.0 million relate to potential problem loans due to various circumstances such as prior problem history with the customer or insufficient collateral value.

Specific reserve amounts identified by the collateral shortfall method amounted to $745,000. Included in the classified loans of $13.9 million were nonresidential real estate loans of $6.6 million, agricultural production finance loans totaling $2.1 million, commercial loans of $2.0 million, one-to-four family real estate loans of $1.8 million, farmland loans of $815,000, consumer loans of $390,000, and construction loans of $265,000. Of the $2.1 million in classified agricultural production loans, $1.0 million in agricultural finance loans had guarantees by the Farmers Home Administration in the amount of $912,000. Also included in classified loans were farmland loans of $373,000 which had guarantees by the Farmers Home Administration in the amount of $336,000.

Reserve Policy and Methodology. The Company maintains an allowance for credit losses to absorb losses inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the probable estimated losses inherent in the loan portfolio. The allowance is increased by the provision for credit losses, which is charged against current period operating results and decreased by the amount of chargeoffs, net of recoveries. In calculating the allowance for credit losses, the Company segments the loan portfolio into two groups, loans evaluated individually and loans evaluated collectively. The methodology for assessing the appropriateness of the allowance account consists of a formula allowance for loans evaluated collectively and specific allowances for loans evaluated individually.

The specific allowances are calculated by applying loss factor percentages to outstanding loans included in the classification of assets, based on the classification category of each loan. Changes in risk grades of these loans affect the amount of the specific allowance. Loss factors for the formula allowance are based on our historical loss experience and may be adjusted for significant factors that, in management’s judgement, affect the collectibility of the portfolio as of the evaluation date. The adjustments to the historical loss experience are based on an evaluation of national and local economic trends, trends in delinquencies and chargeoffs, trends in volume and terms of loans, changes in underwriting standards, and industry conditions. The specific allowance is then calculated alternatively by looking at each loan specifically and evaluating the collateral securing the loan to determine if a shortfall of collateral exists. A specific allowance under this method includes the shortfall amount. The resulting specific allowance amount calculated under both methods is evaluated by the asset classification committee which includes upper management to determine the amount of needed reserves for the loans which are classified. A general reserve amount is calculated for the remainder of the loan portfolio using percentages calculated from actual historical loss experience. The total reserve amount is then formulated by adding the specific reserve relating to the classified loans, and the general reserve pertaining to the rest of the loan portfolio.

While management believes the allowance for loan losses is sufficient to cover losses inherent in its loan portfolio at this time, no assurances can be given that the level of the allowance for loan losses will be sufficient to cover future loan losses incurred or that future adjustments to the allowance for loan losses will not be necessary if economic and other conditions differ substantially from the economic and other conditions used by management to determine the current level of the allowance for loan losses. As of December 31, 2007 and 2006, the allowance for loan losses was 0.88% and 1.18%, respectively, of total loans. Management will continue to monitor and modify the allowance for loan losses as conditions dictate.

The following table sets forth information concerning the allocation of the Company’s allowance for loan losses by loan categories at the dates indicated.

		December 31,
		2007								2006								2005								2004								2003
						% of								% of								% of								% of								% of
						Loans in								Loans in								Loans in								Loans in								Loans in
						Each								Each								Each								Each								Each
						Category								Category								Category								Category								Category
						to Total								to Total								to Total								to Total								to Total
		Amount				Loans				Amount				Loans				Amount				Loans				Amount				Loans				Amount				Loans
		(In Thousands)
Allocated:
Real estate loans:
One-to-four family		$	305				32.80	%		$	260				35.35	%		$	318				32.29	%		$	224				31.15	%		$	154				33.38	%
Multi-family			27				5.68	%			7				1.81	%			2				0.43	%			2				0.59	%			2				0.24	%
Commercial			509				20.87	%			609				17.89	%			866				20.71	%			745				14.02	%			349				9.25	%
Construction			77				1.75	%			5				1.28	%			60				1.51	%			56				1.26	%			60				2.08	%
Agricultural loans			114				12.21	%			78				14.30	%			84				13.03	%			52				14.04	%			91				12.71	%
Commercial and industrial			433				6.05	%			417				3.90	%			466				4.91	%			376				5.32	%			351				5.87	%
Agricultural production finance			197				8.35	%			310				10.02	%			330				9.62	%			320				11.28	%			503				11.29	%
Consumer loans:
Vehicle			312				9.22	%			421				11.55	%			420				13.27	%			414				17.25	%			506				19.23	%
Consumer finance			25				0.34	%			21				0.46	%			42				0.54	%			36				0.66	%			41				0.75	%
Share			—				0.35	%			—				0.54	%			—				0.44	%			—				0.39	%			—				0.49	%
Other			82				1.74	%			76				2.04	%			55				2.20	%			56				2.57	%			68				2.90	%
Other loans			10				0.64	%			18				0.86	%			19				1.05	%			19				1.47	%			—				1.81	%
Unallocated:			—				—				—				—				—				—				—				—				—				—
		$	2,091				100.00	%		$	2,222				100.00	%		$	2,662				100.00	%		$	2,300				100.00	%		$	2,125				100.00	%

The following table sets forth an analysis of the Company’s allowance for loan losses during the periods indicated.

		Year Ended December 31,
		2007				2006				2005				2004				2003
		(In Thousands)
Total loans outstanding		$	236,947			$	187,666			$	159,547			$	119,748			$	108,535
Average loans outstanding, net			204,515				174,375				131,405				111,445				105,773
Balance at beginning of period			2,222				2,662				2,300				2,125				1,963
Charge-offs:
Real estate loans:
One-to-four family			47				74				72				78				118
Multi-family			181				—				—				—				—
Commercial			309				137				91				67				—
Construction			—				—				—				—				—
Agricultural loans			—				—				—				—				—
Commercial and industrial			144				310				—				75				35
Agricultural production finance			69				28				—				14				234
Consumer loans:
Vehicle			144				139				206				156				214
Consumer finance			61				23				20				34				10
Share			—				—				—				—				—
Other			40				62				50				14				48
Total charge-offs			995				773				439				438				659
Recoveries:
Real estate loans:
One-to-four family			—				11				1				8				—
Multi-family			—				—				—				—				—
Commercial			—				—				12				1				—
Construction			—				—				—				—				—
Agricultural loans			—				—				7				—				—
Commercial and industrial			—				—				—				3				5
Agricultural production finance			1				—				2				—				11
Consumer loans:
Vehicle			47				45				48				52				47
Consumer finance			12				15				11				23				23
Share			—				—				—				—				—
Other			29				32				10				11				7
Total recoveries			89				103				91				98				93
Net charge-offs			(906	)			(670	)			(348	)			(340	)			(566	)
Provision for loan losses			775				230				510				515				728
Acquired through business combination			—				—				200				—				—
Balance at end of period		$	2,091			$	2,222			$	2,662			$	2,300			$	2,125
Allowance for loan losses as a percent of total loans outstanding			0.88	%			1.18	%			1.67	%			1.92	%			1.96	%
Allowance for loan losses as a percent of total non-performing loans			236.27	%			120.89	%			175.94	%			146.40	%			188.72	%
Ratio of net charge-offs to average loans outstanding			0.44	%			0.38	%			0.26	%			0.31	%			0.54	%

Investment Securities

The Company has authority to invest in various types of securities, including mortgage-backed securities, U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, certificates of deposits at federally-insured banks and savings institutions, certain bankers’ acceptances and federal funds. The Company’s investment strategy is established by the Investment/ALCO Committee which currently consists of directors and senior officers of the Company. The Investment/ALCO Committee meets on a quarterly basis and the strategy established by the committee is implemented by the Company’s President and Chief Financial Officer. The Company has obtained the services of an independent consultant to provide data regarding the Bank’s investments as well as potential investments. Any material deviations from the investment strategy require approval by the Investment/ALCO Committee.

The following table sets forth information relating to the amortized cost and fair value of the Company’s securities all of which are classified available for sale.

		December 31,
		2007								2006								2005
		Amortized				Fair				Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value				Cost				Value
		(In Thousands)
Available for sale:
U.S. Treasuries		$	3,873			$	3,461			$	3,869			$	3,456			$	3,820			$	3,527
Federal agencies			5,481				5,619				6,967				7,014				8,483				8,375
State and municipal			4,859				4,851				12,351				12,405				13,181				13,252
Mortgage-backed securities			34,021				33,672				40,767				39,957				51,138				50,369
Equity securities			1,026				1,026				1,685				1,683				903				901
Total		$	49,260			$	48,629			$	65,639			$	64,515			$	77,525			$	76,424
Held to maturity:
Mortgage-backed securities		$	5,331			$	5,284			$	4,780			$	4,662			$	3,437			$	3,384
Total		$	5,331			$	5,284			$	4,780			$	4,662			$	3,437			$	3,384

The following table sets forth the amount of the Company’s available-for-sale debt securities which mature during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2007. The table does not include equity securities as they have no stated maturity. The amounts reflect fair value of the Company’s debt securities at December 31, 2007.

						Weighted								Weighted								Weighted								Weighted
		Under 1				Average								Average				5-10				Average				Over 10				Average
Available-for-sale securities		Year				Yield				1-5 Years				Yield				Years				Yield				Years				Yield				Total
		(In Thousands)
U.S. Treasuries		$	1,142				3.63	%		$	2,319				4.07	%		$	0							$	0							$	3,461
Federal agencies			998				3.52	%			4,621				5.19	%			0								0								5,619
State and municipal			81				4.72	%			1,482				4.19	%			3,288				2.55	%			0								4,851
Mortgage-backed securities (1)			9,871				4.67	%			19,911				4.66	%			3,001				4.33	%			889				3.69	%			33,672
Total		$	12,092							$	28,333							$	6,289							$	889							$	47,603

The mortgage-backed securities include $13.6 million in adjustable rate securities which typically have longer stated final maturities, but will have rate adjustments within the next three years. The fixed rate mortgage-backed securities have relatively short projected remaining lives, generally less than fifteen years.

The following table sets forth the amount of the Company’s held-to-maturity debt securities which mature during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2007. The amounts reflect the amortized cost of the Company’s debt securities at December 31, 2007.

						Weighted								Weighted								Weighted								Weighted
		Under 1				Average								Average				5-10				Average				Over 10				Average
Held-to-maturity securities		Year				Yield				1-5 Years				Yield				Years				Yield				Years				Yield				Total
		(In Thousands)
Mortgage-backed securities (1)		$	1,127				5.10	%		$	3,826				4.97	%		$	378				4.50	%		$	—							$	5,331
Total		$	1,127							$	3,826							$	378							$	—							$	5,331

Mortgage-backed securities represent a participation interest in a pool of one-to-four family or multi-family mortgages. The mortgage originators use intermediaries (generally U.S. Government agencies and government-sponsored enterprises) to pool and repackage the participation interests in the form of securities, with investors receiving the principal and interest payments on the mortgages. Such U.S. Government agencies and government-sponsored enterprises guarantee the payment of principal and interest to investors.

Mortgage-backed securities are typically issued with stated principal amounts, and the securities are backed by pools of mortgages that have loans with interest rates that are within a range and have varying maturities. The underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the certificate holder.

The life of a mortgage-backed pass-through security approximates the life of the underlying mortgages. However, prepayment of principal allows the Company to re-invest at current rates. This is beneficial in a rising interest rate environment. During 2007, proceeds generated from repayments and maturities of available-for-sale and held-to-maturity securities totaled $19.0 million compared to $18.7 million in 2006. Of the $19.0 million, repayments on mortgage-backed securities amounted to $8.5 million. Net amortization of premiums and discounts on securities increased to $71,000 in 2007 compared to $49,000 in 2006.

Mortgage-backed securities generally yield less than the loans which underlie such securities because of their payment guarantees or credit enhancements which offer nominal credit risk. However, these securities generally yield more than other debt instruments available from U.S. Government Agencies. In addition, mortgage-backed securities are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of the Company.

The Company’s investment in mortgage-backed securities resulted in higher yields than were generally available from other securities of comparable credit risk. At the same time yields were only marginally less than those generally available on comparable real estate mortgages, without the inherent credit risk.

Sources of Funds

General. Deposits are the primary source of the Company’s funds for lending and other investment purposes. In addition to deposits, principal and interest payments on loans and mortgage-backed securities are a source of funds. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. Borrowings may also be used on a short-term basis to compensate for reductions in the availability of funds and other sources and on a longer-term basis for general business purposes. For a discussion of commitments and credit risk, see note 26 to the consolidated financial statements.

Deposits. Deposits are attracted by the Company principally from within its primary market area. Deposit account terms vary, with the principal differences being the minimum balance required, the time periods the funds must remain on deposit and the interest rate.

The Company obtains deposits primarily from residents in Illinois and Indiana. The Company seeks to attract deposit accounts by offering a variety of products with competitive rates and terms.

Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Management determines the rates and terms based on rates paid by competitors, the need for funds or liquidity, growth goals and federal and state regulations. The Company attempts to control the flow of deposits by pricing its accounts to remain generally competitive with other financial institutions in its market area.

The following table shows the distribution of and certain other information relating to the Company’s average deposits for the years 2007, 2006 and 2005 by the type of deposits indicated.

		December 31, 2007												December 31, 2006												December 31, 2005
						Percent												Percent												Percent
						of Total				Weighted								of Total				Weighted								of Total				Weighted
		Average				Average				Average				Average				Average				Average				Average				Average				Average
		Balance				Deposits				Rate				Balance				Deposits				Rate				Balance				Deposits				Rate
		(In Thousands)
Money market deposits		$	20,127				9.01	%			3.48	%		$	21,164				10.05	%			2.62	%		$	15,841				9.41	%			1.99	%
Savings deposits			14,738				6.60	%			2.06	%			12,449				5.91	%			0.83	%			12,225				7.26	%			0.85	%
NOW and other demand deposits			28,935				12.96	%			1.76	%			27,219				12.93	%			1.02	%			36,990				21.97	%			1.05	%
Non-interest bearing deposits			20,390				9.13	%			0.00	%			21,423				10.18	%			0.00	%			17,357				10.31	%			0.00	%
Total			84,190				37.70	%			1.80	%			82,255				39.07	%			1.14	%			82,413				48.95	%			0.98	%
Certificate accounts
Three months or less			1,218				0.55	%			3.91	%			3,515				1.67	%			4.50	%			356				0.21	%			1.45	%
Over three through six months			19,196				8.60	%			4.92	%			25,341				12.04	%			4.91	%			3,926				2.33	%			2.73	%
Over six through twelve months			68,289				30.57	%			4.83	%			43,298				20.56	%			4.19	%			29,696				17.64	%			2.69	%
Over one to three years			20,587				9.22	%			4.18	%			27,576				13.10	%			3.56	%			26,698				15.86	%			2.59	%
Over three to five years			16,866				7.55	%			4.43	%			15,861				7.53	%			4.18	%			12,828				7.62	%			4.33	%
Over five years			12,985				5.81	%			4.45	%			12,690				6.03	%			4.42	%			12,435				7.39	%			4.35	%
Total certificates			139,141				62.30	%			4.65	%			128,281				60.93	%			4.23	%			85,939				51.05	%			3.14	%
Total average deposits		$	223,331				100.00	%			3.58	%		$	210,536				100.00	%			3.02	%		$	168,352				100.00	%			2.08	%

The following table shows the interest rate and maturity information for the Company’s certificates of deposits at December 31, 2007.

		Maturity Date
		One Year				Over 1-2				Over 2-3				Over 3
Interest Rate		or Less				Years				Years				Years				Total
		(In Thousands)
2.00% - 3.99%		$	18,733			$	3,859			$	2,675			$	491			$	25,758
4.00% - 5.99%			94,834				13,689				6,253				5,760				120,536
		$	113,567			$	17,548			$	8,928			$	6,251			$	146,294